ROI DefinitionWhat is the best ROI Definition?
What is the best ROI Definition?
What is ROI?
This question is often posed because there are many different writers and experts that have different opinions of how to define this. Here are a few examples of an ROI definition: ROI = Return on Investment ROI = Return on Influence ROI = Request for information ROI = Regions of Interest ROI = Republic of Ireland This article will only discuss the top two since they relate more to effectiveness and how to optimize your media investments.
Return on Investment as ROI Definition
Return on Investment is the true meaning of the ROI definition. It has two primary components:
The Returns part of the ROI definition
The Returns part of the ROI definition requires calculating the ‘Returns’ in profit margin throughout the life of the investment. The objective of any investment is to deliver profits at some point in the future. Whether it is a machine building profitable parts for sale, or whether it is a marketing campaign to generate future revenue, the goal of the investment is to deliver returns in the form of profit. The use of revenue would not be correct. You must use profit.
The Investment part of the ROI definition
The investment part of the ROI definition is usually the easiest to capture. For a machine, it may be the full acquisition cost, including shipment and installation. Or for marketing, it may be the production and creative development costs along with the insertion costs to purchase the media. Usually any reasonably good accounting. Once the returns and the investments have been properly calculated the formula for calculating ROI is simple and can be found here.
Return on Influence as ROI Definition
After the introduction of social media and the high value of its influence, many social media marketers started to use Return on Influence for the ROI Definition. Because there are many challenges for non-analytic marketers with calculating the true value of ROI (Return on Investment) for social media, the term Return on Influence was introduced. This is a good proxy for a truer ROI definition but technically isn’t what most marketers are looking for. For our purposes, depending on your requirements and availability of the right data, the best ROI Definition is Return on Investment. For social media, where there isn’t a lot of other data, Return on Influence can be a good ROI definition.
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